Did Pentagon lose billions, pennies at a time?

40 years later, the discrepancy remains
Today, the discrepancy remains. Federal employees are paid based on 2,087 hours in a work year, which accounts for the leap-year cycle. Though a full audit has apparently never been completed, “most” defense contractors are paid on a 2,080-hour workweek, according to the GAO.

What does that mean?

Take an engineer at a defense company who earns $104,000 each year. When that engineer is assigned to a federal contract, he or she is paid at an hourly rate, according to the Project on Government Oversight, which estimated the costs.

Divide $104,000 by 2,080 to get the hourly rate that the defense company can charge the government: $50.

However, use 2,087 hours a year – the rate for federal employees - and the contractor can only charge the government $49.83. In other words, the defense engineer at this pay level earns an additional 17 cents for every hour, the group found.

That sounds minuscule. But contract employees account for more than half of the federal workforce, an estimated 7.6 million jobs in 2005, according to Dr. Paul C. Light, a professor at New York University and a senior fellow at the Brookings Institute.

“How much of a savings will it be? It’s millions,” Loeb said. “Reasonable people can’t disagree on this. It’s standard arithmetic.”

As contracts grew, oversight fell
The discovery by Davey is a small part of a much bigger problem: The massive cost overruns in federal contracts.

Since 2000, federal contracting has more than doubled to $532 billion last year. Federal cost-plus contracts – like those targeted by Davey – grew 75 percent under the Bush administration, and development costs for the Defense Department’s major weapons programs exceeded their original budgets by $300 billion in 2008, the Government Accountability Office said in a report last month.

Critics say the problem stems from the cost-plus contracts, which allow the defense industry to preserve profits even if projects go over budget or if the Defense Department underestimates the initial budget.

The contracts have long been used to encourage research and development -- including big-ticket projects such as the Trident II Missile and the F-35 Joint Strike Fighter. Otherwise, supporters say, such projects might otherwise be too risky in the initial research stages for contractors to undertake.

“They are essential, particularly when you are dealing with the research and development,” said Cord Sterling, vice-president at Aerospace Industries Association, which represents major defense and aerospace businesses. “If you are really reaching to develop a new technology and new capabilities, you are going to see an increase in that type of activity.”

But those contracts are increasingly being used for less-risky service contracts, according to Center for Strategic and International Studies, a Washington, D.C.-based foreign policy think tank.

And even as those contracts ballooned, the number of federal employees overseeing them grew only slightly and the federal Cost Accounting Standards Board shrunk to a single staffer, making it necessary to abandon active investigations, according to Loeb, the board’s former executive secretary and counsel.

“The contractors hated the CAS Board and got the Bush people to basically shut it down,” Loeb said by e-mail.

A ‘time-consuming and fruitless effort’
That has only made Walter Davey more resolute. Three years ago, he and his son, Jim, a commercial airline pilot, signed and mailed letters to each of the 535 members of Congress.

Walter T. Davey Walter T. Davey, as a young serviceman and now.

They received three form letters in response.

“It was an expensive, time-consuming and fruitless effort,” Davey said. “There’s a long list of people we’ve been rebuffed by. But I don’t want to just give up.”

Amey, the Project on Government Oversight’s legal counsel, applauded Davey’s efforts but sought to dampen optimism that change is coming despite the Obama administration’s pledges to rein in defense overruns.

“A lot of people have taken advantage of the system to reap as much in taxpayer dollars as possible,” Amey said. “But when you’re going up against the contractor lobby – whether you’re an individual across the country or a public interest group or a government employee – it’s a tough road.”

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